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This article defines the commonly used terminology (starting with letters E to O) in the tax and financial planning arena or within Old Mutual Wealth.

Endorsement

A written amendment or modification to an existing contract or insurance contract.

Estate

An individual’s estate is everything they own in their name or their share of everything owned jointly, including their main property, second property, cars, boats, life assurance policies, life bonds and other investments, as well as personal effects such as jewellery.

In the UK, it also includes assets held in trust which they can benefit from and any gifts made where they keep back some benefit (gifts with reservation) and any gifts made (where no benefit is retained) where these were made less than seven years before the individual’s death for UK inheritance tax purposes.

Excess event

Where withdrawals, part surrenders, or part assignments for consideration occur for a life assurance or capital redemption contract in a policy year and the amount of the withdrawals, part surrenders or consideration for the part assignment exceeds the cumulative tax deferred allowance of 5% of the Premiums paid to the policy for each policy year.

Excluded Property

‘Excluded property’ is a term used within UK Inheritance Tax (IHT) legislation to describe assets which are exempt from the scope of the IHT legislation.

Property situated outside the UK can be considered excluded property if the owner is domiciled outside of the UK. For example a French townhouse owned by a Dutch domicile would be considered excluded property.

Where property is held within a settlement (settled property) and that settled property is outside the UK, the property would be regarded as excluded property providing the Settlor was not UK domicile at the time the settlement was made.

Executor

A person identified in a Will who is then subsequently appointed by a UK or Manx Grant of Probate (Confirmation in Scotland) to deal with the administration of an estate of a person who has died.

Exempt transfer

Some gifts are exempt from UK inheritance tax such as gifts between spouses and civil partners and gifts not exceeding £3,000 in any one tax year.

Fiduciary

A fiduciary is a person who is entrusted with exercising rights and powers for the benefit of another person. A fiduciary must not put their personal interests before their duty however they may also be a beneficiary.

Forced heirship

The laws of succession in a jurisdiction define specific rights for certain persons (the protected heirs). Whatever a Will might say, it can easily be overturned by the protected heirs.

For example, in England, Wales and Northern Ireland clients can leave assets to whomever they choose. Whereas, in most European countries, including Scotland, this is not the case and therefore forced heirship applies.

Foundations

A foundation is a legal entity, created by a founder, who gifts an asset to the foundation for the benefit of one or more persons (known as beneficiaries) for a specific purpose. Foundations have existed in civil law jurisdictions for a number of years, the two key jurisdictions being Liechtenstein and Panama. Other jurisdictions to recognise foundations include Isle of Man, Switzerland, Austria and the Netherlands.

Fund adviser

A person or firm who provide investment advice.

Gift tax

Gift tax is chargeable when an individual gives away an asset where no consideration is received in return for the gift and the gift is not subject to an exemption.

Gift with reservation of benefit

A UK concept. A gift which is given away by the donor but which is not fully given away so that the donor still retains a benefit from the gift. There are likely to be UK inheritance tax implications with this sort of gift - refer to our article ‘IHT - the forgotten tax for further details. The following are examples of such gifts:

The gift of a property where you continue to live for your lifetime without paying rent to the beneficiary.

The payment of premiums into a life assurance policy, written in trust since March 1986, where you are a potential beneficiary.

If the benefit which you can enjoy ends during your lifetime, then you will be treated as having made a potentially exempt transfer on that date. However, if the benefit continues until your death, the value of the property or the trust fund will form part of your estate for IHT purposes. The person making the gift is generally liable for paying the tax although in some jurisdictions the recipient of the gift or their heirs may be liable.

Grant of Probate

The document issued to executors by the probate registry in England and Wales (or jurisdictional equivalent) to authorise the executors to administer and distribute the estate in accordance with the deceased's Will.

Inheritance tax (IHT)

A tax imposed on the value of a person’s estate on death or where the value of the estate exceeds a certain threshold. For example, in Spain this tax is charged on a progressive scale whereas in the UK it is fixed at 40% over the nil-rate band threshold. In some jurisdictions it may be possible for the Executors to claim an exemption from IHT, for example, where the assets are gifted to the surviving spouse.

IHT can also be imposed on certain gifts made by an individual during their lifetime (see Gift tax).

Intestacy

(UK and Manx Law interpretation). This is where a person dies without passing their estate by a Will. Alternatively a partial intestacy may arise where a person does have a Will but not all of their assets are covered by their Will or where executors are not correctly appointed.

Intestacy rules

These are a set order of entitlement as to who will inherit under intestacy in the UK. The administration of an intestate estate is then governed by the provisions of the Administration of Estates Act 1925 or its equivalent in Scotland and Northern Ireland.

Issue

All legitimate or legally adopted children of a person. Remoter issue refers to all legitimate or legally adopted grandchildren, or great grandchildren.

Jurisdiction

The territory over which the law of a given country extends. For example with Old Mutual International the jurisdiction is the Isle of Man.

Lay trustee

A person who does not act in a professional capacity as a trustee. For example, a family member of the settlor.

Legal personal representatives

The collective term used in the UK for Executors and Administrators.

Life assurance contract

A contract between the policyholder and insurer whereby the insurer, in return for the policyholder paying a premium or premiums, undertakes to pay a sum of money on the death of the life assured.

Life assured

The person who is identified in the life assurance contract upon whose death a sum of money will be paid.

Lifetime trust

A power of appointment trust offered by Old Mutual International and Old Mutual International Trust Company whereby the settlor is included as a beneficiary and could therefore benefit from the trust.

Loan trust

A trust established through a loan from the settlor to the trustees who invest this on behalf of the beneficiaries. The loan can be paid back on demand by the settlor in full or in instalments. Any growth on the investment forms part of the trust fund held for the benefit of the beneficiaries.

Minor

It is a person who has not yet reached an age at which they can enter into binding contracts or vote. In England and Wales, Isle of Man, Guernsey and Singapore, this is a person under the age of 18.

Nil-rate band (NRB)

A UK concept, where the value of an estate up to which inheritance tax is not payable. This is not a fixed amount and has historically increased year on year. Currently, the first £325,000 (for the tax year 2012/13) in an individual’s estate is taxed at 0%.

Nomination

Generally, a nomination transfers ownership of policies on the death of either the bondholder or the life assured (as specified in the nomination) to the beneficiary identified in the nomination. This definition differs in Singapore.

Nominee

The person identified under a nomination to be entitled to benefit. Also known as a beneficiary.

Normal expenditure out of income

All transfers, or gifts, are exempt from inheritance tax (IHT) if:

they are made as part of your normal expenditure,

they are made out of your ‘natural’ income,

after allowing for all transfers taken from normal expenditure, you are left with sufficient income to maintain your usual standard of living, and

the payments are habitual or regular.

Offshore bond

means any offshore life assurance contract (but generally pays 101% of the encashment value on death of the life assured in return for a single premium), or capital redemption bond (also known as capitalisation contracts) unless local jurisdiction dictates otherwise.

For Old Mutual International this would mean all our products, including our current products as shown below, would be offshore bonds:

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth's interpretation of the relevant law and is correct at the date shown at the top of this article. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual Wealth cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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